How is freight priced? A dive into freight rates by mode of transit

Tony MulveyFreight Market Pulse

Barge around the Tennessee River Gorge

Understanding freight cost per unit across different transportation modes is a key to determining what mode is the most cost-effective and timely to ship goods from point A to point B. With this information, a freight forecaster can then develop competitive requests for quotes (RFQ) and requests for pricing (RFP). 

Full-truckload is priced on a per-mile basis. Accessorials like fuel surcharges are quoted separately. This allows freight forecasters to compare multiple lanes to determine the competitiveness of rates. Per-mile full truckload rates often include deadhead miles to the shipper or from the consignee. These deadhead miles represent the empty miles a carrier must travel from or to their next load. This is an important detail as trucking operating costs are broken down on a per-mile basis, so both empty and loaded miles should be included in the cost per mile calculation. 

Less-than-truckload (LTL) is priced based on a hundred-weight and volume. Fifty-three foot  trailers can fit 26 pallets per trailer and LTL breaks up the trailer into multiple shipments. LTL sells multiple shippers space on trucks and is much more difficult to price than truckload because of the numerous inputs that are required for LTL shipments. These inputs include class, commodity type, weight, and as stated earlier, volume. The tariff system of LTL is often confusing as well with special volume pricing and CzarLite tariffs that are negotiated with each LTL carrier. 

Bulk trucking is priced based on the ton-mile. This price is based on the weight and distance of the shipment. For example, if you ship 24 tons of a commodity 100 miles it would be 2,400 ton-miles. If the rate is $0.30 per ton-mile the transportation cost would be $720. The ton-mile differs depending on the commodity and equipment needed but is calculated based on the tons and miles.  

Parcel is similar to LTL pricing. Cargo is priced by the pound, but there are dimension factors as well as transit times. The perfect example is shipping from your local post office. The package is put on a scale and a price pops up on the pin pad. There are additional charges for packages that fall outside of certain dimensions or that are overweight. Prices also vary based on the transit times; for example, overnight shipments are priced higher than standard transit times. 

Air freight is priced per kilogram, either actual weight or volumetric weight. Volumetric weight is the measure of the density of a shipment. The dimensions of the package are divided by a divisor determined by the air carrier. If the volumetric weight is larger than the actual weight, the price is determined by volumetric weight. If the volumetric weight is smaller than the actual weight, the actual weight will determine the price. 

Rail containers are booked on a per-mile rate similar to truckload as shippers and intermodal providers, like J.B. Hunt negotiate contracts similar to truckload contracts. The intermodal provider has agreements with the railroads to transport assets across rail networks. 

Bulk rail carloads are mainly contracted rates, based on the number of carloads a shipper will be giving the railroads. Prices are determined on a dollar amount per carload basis. While a very small minority is moved in the spot market, spot rates are determined by tariffs posted by the railroads. 

Ocean TEUs are priced on all-in per lane for contracted rates. Spot rates are also quoted as an all-in rate on most commonly based region-to-region lanes like China to the Mediterranean or Southeast Asia to North America West Coast. 

Dry bulk ocean is priced per day, commonly called a time-charter equivalent (TCE). The per-day rate is calculated in dollars per ton and converted to the dollars per day rate and the fuel surcharge is subtracted. 

Barge freight rates are stated in dollars per ton. Rates are determined by benchmark tariffs set in 1976 and now multiplied by the current tariff to determine the price per ton. The price of the tariff is based on where the shipment originates. 

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